This page houses articles that I have written about using a Canadian Controlled Private Corporation (CCPC). These can go by many names, like a Medical Professional Corporation (MPC), Professional Corporation (PC), or a holding company.
Corporations & Cashflow
Income Smoothing Using A Corporation To Reduce Taxes
You are bound to have fluctuations in your income. Both over your long-term career and life cycle, but also year to year. Your consumption and the income required to support it will also fluctuate.
Learn how income smoothing using a corporation can minimize your taxes. That means more money for you to spend now or invest for the future.
Corporate Account Types: Know Where The Money Is
A corporation allows us to regulate money flow, like a giant dam. That could reduce taxes by releasing income smoothly. You can also allow money to pool in the reservoir.
There are different accounts that you can use to efficiently manage corporate cash flow. Some of those are real accounts with real money. Others are notional accounts tracked on paper. Learn where the money is to turn notional money into real money. And to manage that real money well.
Dividends To Maximize Your Corporate & Personal Cash Flow
Now that you know where the money is, you must learn how to balance releasing it using dividends against the personal tax on dividends.
In this post, learn about when and how to pay yourself dividends tax efficiently from your corporation. Getting the right mix of dividends can increase your investible money.
Prioritize that to minimize how much of your buying power is nibbled away by the inflation-monster. Take advantage of opportunities to shift corporate money to invest personally without losing tax deferral.
Why to Pay Yourself Salary From Your Corporation
You learned in the preceding post why paying yourself some dividends is important when your corporation has investment income.
However, most incorporated business owners also benefit from paying themselves a salary. Similar to a regular employee.
Learn why paying yourself a salary from your corporation is beneficial and where that fits in with paying yourself dividends.
How To Pay Salary vs Dividends From Your Corporation (Video)
You have to move the money out of your corporation and pay personal taxes to use it. Learn more about how to optimally do that using a combination of salary and dividends. The optimal mix will also change as your corporate investments grow. Learn why to ask the right questions and provide the right information to get the best out of your accountant.
When to Pay Yourself Extra From Your Corporation
For compensating yourself, paying enough dividends to release refundable taxes, then salary to make up a personal cash shortfall is a good rule of thumb. So, is taking advantage of corporate tax deferral.
However, this post describes times when you may want to take out some extra money from your corporation. Plus, ideas of how to better deploy it. You must understand enough to work with your accountant to get the best plan for you. Not just a rule of thumb.
Strategies To Withdraw Big Chunks of Money From Your Corporation Tax Efficiently
For large withdrawals from your corporation, plan in advance to minimize the tax hit.
That means more money for you to pay off debt, buy a house, max out your RRSP/TFSA, or whatever big splurge you have planned.
Learn about six different ways to access your cash without getting crushed by a big tax boulder trap.
Is CPP A Pension Or A Tax For The Self-Employed?
One of the arguments used against paying salary from a corporation is that you have to pay into CPP. Both the employer and employee contribution.
Is that a tax and something to avoid, if possible? Or is it a defined benefit, inflation-indexed pension to be coveted?
Spoiler: It can be either.
Is CPP A Good Investment For The Self-Employed?
If CPP is a pension in your case, the next question is whether it is a good investment or not.
Those who argue against paying salary and into CPP base that on the fact that it leaves less money in the corporation to invest.
How does CPP compare to other ways for you to invest?
Corporate Tax Calculator & Compensation Planner
There is an embedded video and also a written explanation of how to use my CCPC Income Dispenser. It is a corporate and personal tax calculator to help you get a sense of an optimal corporate compensation plan for your situation.
You enter your goal after-tax personal spending, investing plan (RRSP/TFSA/RESP), and income. It then spits out a compensation plan including taxes and cash flow. That could serve as a good starting point for further discussion and planning with your accountant.
Income Splitting
Income Splitting Strategies For Canadians
With Canada’s tax system, two families with the same household income can pay radically different amounts of tax.
Learn multiple strategies to income split and reduce your household tax bill. It can mean not only less tax now, but also in the future too.
Tax On Split Income (TOSI) Tax Rules
In 2018, the Minister of Fairness spanked CCPCs for income sprinkling.
There are still times where CCPC owners may still be able to us dividends to income-split with family members.
There are complicated rules. Get the bottom line.
You May Want To Be Sleeping With Your Billing Agent
Hiring a family member and paying them a fair wage is a great way to income split.
Not only do you decrease money going to the tax collector. You play less to outside agents. No one will care whether you get the maximum billable amounts more than you and your spouse.
Optimal Corporate Income-Splitting Strategies
Paying a spouse a salary is a great way to income split. However, it is limited to market rates.
Dividends help to keep a corporation tax efficient and are not limited by market rates. However, there are other rules to deter you from using them to income split. If you qualify for an exception, then it is a boon.
Learn about the factors to balance in choosing an optimal salary and dividend mix to income split using your corporation. It is like learning to ride a bike. Built for two.
Investing Using A Corporation
Investment Taxation In A Corporation
If you have retained earnings in your corporation, you can invest them to grow. That is the tax deferral advantage of a corporation.
How well that works depends on the type of investment income it produces and how well you flow money out of your corporation.
Learn about how corporate investment taxation works to keep the tax skeeters out of your corporate reservoir.
What Counts As Passive Income For Corporations: Devils In The Details
Too much passive income in a CCPC can increase its tax rate.
Learn about what counts and what doesn’t.
Make sure that you are using all of the deductions available to you.
Will The Active-Passive Tax Rules Destroy the CCPC Enterprise?
These tax changes are meant to further discourage incorporated professionals and other high-income professionals from using a CCPC as a tax-deferral vehicle.
What impact will that have on the tax-deferral power of private corporations?
Impact of the Passive Income Tax Rules For Corporations As A Retirement Vehicle
The active-passive tax increase on Canadian small businesses has a variable impact.
It depends on your income, savings rate, and spending.
Check out the effects on three different model high-income households.
With The Passive Income Corporate Tax Changes: Is It Bad To Be Good?
The tax changes were aimed to target high-income professionals.
Could a moderate-income professional get caught in them too, if they are good. They work hard, live within their means, and save for the future.
Will Dr. Sandra D. be punished for their savings rate?
Limbo With The New Active-Passive Income Rules For Corporations
A combination of too much active and too much passive income in a corporation could result in a bump in corporate tax rate.
A high level approach is a basic dance to lower corporate active and passive income to limbo under the threshold.
Financial Tools & Strategies For Incorporated Professionals To Repel Tax Pirates
An overview of eight different strategies we can use if we find our corporate ship drifting into tax-pirate infested waters.
Learn the basics of how they work.
Don’t just trade some tax savings for increased fees and complexity.
Explaining The Refundable Dividend Tax On Hand (RDTOH)
There are a number of tax rules to discourage using corporations for generating passive investment income. One of those is the RDTOH.
There were more changes in 2019 to make it even more awkward and complicated.
Like a Klingon mating ritual.
Corporation GRIP As A Tax Slashing Weapon
If you receive eligible dividend income from investing in Canadian equities, it generates GRIP in your corporation.
That can be used to give tax-favoured eligible dividends.
This has the potential for very tax-efficient money flow through a corporation. Or you could cut yourself.
Can You Benefit From The Loosened GRIP On Corp Passive Income Tax
Warning: Devilishly Advanced Content.
Implementation of the active-passive income tax was meant to penalize those with high corporate incomes.
They broke tax integration in Ontario & New Brunswick that could translate to a 2% to 6.66% net tax savings for a small group of big earners/investors/spenders.
Investing Using A Corporation vs RRSP vs TFSA Simulator
Some advise to only pay dividends from a corporation and keep all investments in the corp.
Others advise to pay salary and use an RRSP plus the corp. Some even suggest a combination to use a corp, RRSP, and TFSA.
There are a number of variables that lead to this advice and they change as our corporation grows. This simulator compares these different strategies over time.
Time For Capital Gains Harvesting From Your Corporation?
Generally, it is a good idea to defer realizing capital gains because that defers taxes. However, in a corporation, if you are sitting on large capital gains, it can sometimes makes sense to harvest them.
A capital gains harvest could be a tax efficient way to move money out of your corporation to fund a personal expense, top up your TFSA or RRSP, or invest via a personal account.
HBB Corp Class Bond ETF vs ZDB Discount Bond ETF in a Corporate Account
Learn how discount bonds are more tax efficient. With the tax rules to discourage passive income in corporations, that is even more important.
HBB could take tax efficiency up another notch depending on your corporate income and pay-out.